Super savers reject refund offer

Peter Burgess, technical director of the SMSF Professionals’ Association of Australia is surprised that so few savers who exceeded the annual cap on super contributions have accepted a refund.
Photo: Michel O’Sullivan

Fewer than a third of savers who have put too much money into superannuation have taken up the offer of a refund, raising fears that higher income taxpayers are deliberately exceeding their annual allowable super contributions.

Last year the federal government said savers who exceeded the annual cap on contributions by less than $10,000 would be offered a one-off amnesty to avoid punitive taxes. The Australian Taxation Office said that at December 7 it had made 10,086 refund offers. In 70 per cent of cases savers chose to pay a levy rather than have the excess contributions removed from their account. Individuals who take the option of paying the fine must pay 46.5 per cent tax on the amount they have overcontributed.

The take-up figure surprised Peter Burgess, technical director of the SMSF Professionals’ Association of Australia who said it was lower than he would have thought.

Mr Burgess said the lacklustre response to the government’s offer of an amnesty could be due to apathy or poor understanding of the rules on the part of taxpayers.

Alternatively, individuals already on the top tax rate were choosing to leave the extra money in super because they already paid 46.5 per cent tax, so the fine was not punitive.

Some could intentionally be putting too much money into super on the grounds it was a tax-friendly way to save for retirement.

It is thought the refund offers made thus far, which are for the 2011-12 financial year, apply mainly to members of pooled funds rather than do-it-yourself funds.

Self-managed super funds tend not to submit tax returns until nine months after the tax year has ended.

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If it is mainly taxpayers on the top rate who have been shunning a refund, the rate of take-up could drop even further when do-it-yourself scheme members are included.

The Tax Office declined to speculate on why the take-up rate was so low. A spokesman said taxpayers who received an offer of a refund needed to consider the “benefit of leaving the excess contribution within the super system" as well as the income tax implications of accepting an offer.

Individuals can only put up to $25,000 of pretax income a year into super, including the 9 per cent compulsory contribution.

Individuals are given 28 days to accept the offer of a contribution refund.

If they do not accept and return a form to the ATO, they will be deemed to have declined the offer and be sent an excess contributions tax bill.

Those members will not be offered another refund should they again exceed their annual limit.

The government is hoping the offer to refund contributions will placate fund members and advisers who criticised the previous system for being overly harsh.

The original arrangements led to people who contributed as little as a few dollars too much receiving tax bills as high as $70,000.